Valuation fears drag down world equities, Wall Street; bonds gain
NEW YORK (Reuters) - Global equity markets fell on Friday as fears on Wall Street about over-stretched stock valuations spread to Asia and Europe, pushing investors to the safety of bonds.
The Nasdaq composite, which has been pounded in recent days as investors bailed out of high-flying technology and biotech shares, reversed early gains to fall more than 1 percent. The index closed below the 4,000 mark for the first time since early February.
The benchmark S&P 500 index was also lower after failing to hold a brief rebound. Both the Nasdaq and the S&P 500 posted their biggest weekly declines since June 2012.
The Nasdaq biotech index .NBI, down more than 20 percent from late February, slid 2.8 percent after an earlier comeback.
Benchmark 10-year Treasuries notes tracked the ups and downs on Wall Street, paring gains early in the session, then rising in choppy trade. With equities lower, the 10-year bond rose 3/32 in price to yield 2.6175 percent.
"This equity market meltdown has brought a 'fear' bid into bonds," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York.
The U.S. bond market rallied this week on renewed safe-haven bids as well as relief buying in reaction to the release of minutes from the Federal Reserve's March 18-19 policy meeting.
The intense appetite for bonds spread into this week's auction of $64 billion worth of longer-term debt, which raised $13.5 billion in new cash for the federal government.
An MSCI benchmark of global equities fell to a two-week low, spurred by a broad risk-averse tenor among investors that led to selloffs in higher-yielding currencies and emerging market assets.
The slide in global equities persisted in the wake of disappointing quarterly results from JPMorgan Chase & Co (JPM.N), the biggest U.S. bank. This exerted more pressure on the benchmark Standard & Poor's 500 index .SPX, which on Thursday had suffered its biggest one-day drop in two months.
Shares of JPMorgan sank 3.7 percent to $55.30, while the S&P financial index .SPSY lost 1.2 percent and was the worst performing S&P sector.
Friday's losses on Wall Street came a day after the Nasdaq posted its biggest single-day percentage loss since November 2011.
"Today's decline is what we've been seeing all week. The weakness in the biotech and momentum names is getting investors worried about where the market is headed in the near-term, eventually triggering a selloff in everything," said Robert Pavlik, chief market strategist at Banyan Partners in New York.
"Our long-term outlook on the market hasn't changed because if you understand why the market is selling off, you know it's not rational, that it doesn't make sense," he added.
MSCI's all-country world equity index .MIWD00000PUS fell to lows last seen in late March and was last trading down 1.0 percent.
The Dow Jones industrial average .DJI closed down 143.47 points, or 0.89 percent, to 16,026.75. The S&P 500 .SPX lost 17.39 points, or 0.95 percent, to 1,815.69, and the Nasdaq Composite .IXIC dropped 54.372 points, or 1.34 percent, to 3,999.734.
For the week, the S&P 500 fell 2.6 percent and the Nasdaq lost 3.1 percent, the biggest weekly decline for both indexes since June 2012.
The pan-European FTSEurofirst 300 .FTEU3 of leading regional shares closed down 1.4 percent at 1,312.92.
European technology stocks .SX8P led sectoral falls with a 2.5 percent decline, echoing U.S. declines. The tech sector in Europe had rallied more than 40 percent since November 2012 through the start of April.
ARM (ARM.L), whose chip designs are featured in smartphones such as Apple's (AAPL.O) iPhones, fell 4.5 percent.
The dollar index, which measures the greenback against six major currencies, rose 0.13 percent, and the dollar edged higher against the yen, also up 0.13 percent. The euro fell slightly after being ahead a tad against the dollar most of the session.
"Bad news for the world is good news for the dollar," said Steven Englander, managing director and global head of G10 FX strategy at CitiFX in New York. "Once fears about the equity market intensified, they picked up a more conventional type of mode to buy the dollar."
U.S. crude oil rose by $1 as a positive consumer confidence report and high gasoline demand indicated a stronger economy, while Brent was lifted for most of the session by traders' concerns over tensions between Russia and the West.
The International Energy Agency set a bearish tone for the market earlier in the session after it lowered its global demand forecast for 2014 due to expectations that more Libyan crude will reach the market next week, pushing Brent lower.
Brent oil futures gained slightly. Brent crude settled down 13 cents at $107.33 a barrel. U.S. oil rose 34 cents to settle at $103.74 a barrel.
(Reporting by Herbert Lash; Additional reporting by Atul Prakash in London; Editing by Leslie Adler)